Debt-to-income ratios must be limited because beyond a certain point, rising debt service becomes a Ponzi scheme.

Loans for the purchase or refinance of residential real estate secured by a mortgage and recorded in the public record are limited by the following parameters based on the borrower’s documented income and general indebtedness and the appraised value of the property at the time of sale or refinance:

All payments must be calculated based on a 30-year fixed-rate conventionally-amortizing mortgage regardless of the loan program used. Negative amortization is not permitted.

The total debt-to-income ratio for the mortgage loan payment, taxes and insurance cannot exceed 28% of a borrower’s gross income.

The total debt-to-income of all debt obligations cannot exceed 36% of a borrower’s gross income.

The combined-loan-to-value of mortgage indebtedness cannot exceed 90% of the appraised value of the property or the purchase price, whichever value is smaller except in specially sanctioned government programs.

The primary focus of my proposal was to limit lending to amounts buyers could afford to pay back. Eliminating toxic loan programs and keeping equity in the property help keep prices stable, but limiting debt-to-income ratios are critical to preventing delinquencies and foreclosures which ultimately ravage the housing market.

Limitations on the debt-to-income ratio and combined-loan-to-value prevent bubbles in the housing market and insulate the banking system from risk. Borrowers will not police themselves.

People will commit large percentages of their income to house payments when prices are rising quickly; however, they do this out of fear of being “priced out” and greed to make a windfall from appreciation — beliefs that inflate bubbles. Borrowers cannot sustain payments above the traditional parameters for debt service without either defaulting or causing severe declines in discretionary spending. The former is bad for the banks, and the latter is bad for the entire economy.

During the housing mania, bankers completely lost their minds and ignored the amount of debt they were issuing relative to the borrower’s income. Banks everywhere simultaneously began running Ponzi schemes which imploded and took the world economy down with it.

In a Ponzi scheme, borrowers rely on fresh infusions of debt to service debt and fuel consumption. Borrowers do not have the income to do either of those things, so the influx of new debt is essential to keeping the system going. When lenders withhold this debt, borrowers abruptly stop making debt service payments, and lenders respond by increasing interest rates, demanding repayment, and curtailing new debt issuances — a credit crunch.

I noted back in 2008 that the California economy is dependent upon Ponzi borrowers. Economists struggled to explain the lackluster recovery from the Great Recession, but in reality, it’s quite simple: California’s HELOC economy collapsed due to the elimination of the free-money stimulus banks gave homeowners. Even a massive government spending program is no enough to make up for millions of homeowners irresponsibly spending hundreds of thousands of dollars each.

There is no question something should be done to prevent asset bubbles in general and housing bubbles in particular. Houses have historically been a reservoir of retirement savings, although lenders have worked to ruin that with unrestricted mortgage equity withdrawal. The stability of house prices is paramount if we are to have a functioning economic system.

Even the federal reserve noticed that the ratio of U.S. household debt to disposable personal income started to rise rapidly during the mania, providing regulators with a timely warning of a potentially dangerous buildup of household leverage. Unfortunately, they failed to heed this warning.

For any early warning system to work, regulators and the banking industry must accept that fact that financial innovation is folly. Part of the reason everyone ignored the obvious warning signs of excessive debt is because they believed the financial innovation meme. If policymakers come to believe that the next Ponzi loan program is a viable financial innovation, we will watch the debt-to-income ratio grow wildly out of control, and we will be assured everything will be okay — until it isn’t.

The simplest solution is to focus on regulating debt-to-income ratios. It’s a simple, measurable mathematical relationship that’s hard to ignore, which is probably why Dodd-Frank limited debt-to-income ratios on home loans at 43% of borrower income.

Pending home sales rebounded in February, hitting the highest level in almost a year and the second-highest level in more than a decade, according to the latest report from the National Association of Realtors.

The Pending Home sales Index, a forward-looking indicator based on contract signings, surged 5.5% to 112.3 in February, up from 106.4 in January. The index hit 2.6% above last year to its highest point since April’s 113.6 and the second highest since May 2006.

Last month, the Pending Home Sales Index dropped to the lowest level in a year.

“Buyers came back in force last month as a modest, seasonal uptick in listings was enough to fuel an increase in contract signings throughout the country,” NAR Chief Economist Lawrence Yun said.

“The stock market’s continued rise and steady hiring in most markets is spurring significant interest in buying, as well as the expectation from some households that delaying their home search may mean paying higher interest rates later this year,” Yun said. “Last month being the warmest February in decades also played a role in kick-starting prospective buyers’ house hunt.”

All major regions saw a drastic increase from last month’s levels. The index increased 3.4% in February to 102.1 in the Northeast, 11.4% to 110.8 in the Midwest, 4.3% to 127.8 in the South and 3.1% to 97.5 in the West.

In the spring home-buying months ahead, home sale activity will see ebbs and flows as new housing supply struggles to replace listings that are quickly going under contract.

“The homes most buyers are in the market for are unfortunately the most difficult to find and ultimately buy,” Yun said. “The country’s healthy labor market is translating to greater job security, but affordability is not improving because home prices in some areas are still outpacing incomes by three times or more because of tight supply.”

“How much new and existing inventory there is on the market this spring will determine if sales can reach their full potential and finally start reversing the nation’s low homeownership rate,” he said.

Consumer confidence leapt forward in March to the highest level in 16 years, according to the Consumer Confidence Survey conducted by The Conference Board by Nielsen, a provider of information and analytics around what consumers buy and watch.

The Consumer Confidence Index improved significantly in March to 125.6, up from 116.1 in February. The Present Situation Index increased from 134.4 to 143.1 and the Expectations Index increased to 113.8, up from 103.9 last month.

In 1985, the index was set to 100, representing the index’s benchmark. This value is adjusted monthly based on results of a household survey of consumers’ opinions on current conditions and future economic expectations. Opinions on current conditions make up 40% of the index, while expectations of future conditions make up 60%.

“Consumer confidence increased sharply in March to its highest level since December 2000,” said Lynn Franco, The Conference Board director of economic indicators. “Consumers’ assessment of current business and labor market conditions improved considerably.”

“Consumers also expressed much greater optimism regarding the short-term outlook for business, jobs and personal income prospects,” Franco said. “Thus, consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.”

The share of mortgage applications for refinances just fell to a level not seen since October 2008, new data from the Mortgage Bankers Association showed.

According to the MBA’s latest Weekly Mortgage Applications Survey, which covers the week ending March 24, 2017, the refinance share of mortgage activity declined to 44% percent of total applications, the lowest that figure has been in more than eight years.

In the previous week, the refinance share was 45.1%.

The adjustable-rate mortgage share of activity decreased to 8.5% of total applications, down from 9% in the previous week, which was the highest level since October 2014.

Overall, the latest MBA data showed that mortgage applications decreased 0.8% from one week earlier, marking the second straight decline.

The report showed the Market Composite Index, a measure of mortgage loan application volume, decreased 0.8% on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Index decreased 0.4% compared with the previous week. The Refinance Index decreased 3% from the previous week.

The seasonally adjusted Purchase Index increased 1% from one week earlier. The unadjusted Purchase Index increased 2% compared with the previous week and was 4% higher than the same week one year ago.

The Federal Housing Administration’s share of total applications decreased to 10.8% from 10.9% the week prior, while the Veterans Affairs’ share of total applications increased to 11% from 10.1% the week prior.

Yes. That one is hard to explain. Their economy is booming, particularly since they legalized marijuana, but the prices people are paying for homes there don’t seem to make much sense. If they are land constrained, it’s entirely political because there are no physical barriers to the north, east, or south to expanding Denver.

Congressional Republicans are eager to overhaul the Dodd-Frank financial law. One part, however, they wouldn’t mind putting off.

That’s the provision that limits how much money debit-card companies are allowed to collect from each consumer sale. Generally speaking, banks are against the limit and retailers are in favor. Persuading Congress to change the 2010 banking law is a longshot, but that’s not stopping both industries from spending millions to remind lawmakers, sometimes multiple times a day, that a vote the other way will displease them.

Titans such as JPMorgan Chase & Co., who say they use revenue from so-called swipe fees to beef up cybersecurity and offer rewards programs, contend the government shouldn’t set prices. Behemoths like Wal-Mart Stores Inc., who say lower fees translate to lower prices, argue the credit-card industry operates like a monopoly and needs more regulation.

The years-long lobbying fight has been reinvigorated by President Donald Trump’s call to rip up financial rules. Stuck in the middle are lawmakers from both parties who prefer cordial relations, and campaign contributions, from both sides.

“This is like choosing between children,’’ said Issac Boltansky, a financial regulation analyst at Compass Point Research & Trading. “It’s brutal for everyone involved.’’

Why bother even pretending the voters matter in this discussion? Average Americans are probably 99% against raising debit card fees, but this article makes it seem like a 50/50 proposition getting the rule overturned.

I’m surprised some of the bigger retailers like WalMart don’t already own their own credit card processing company just to recapture these fees. There must be some law to prevent this, a law probably drafted by the banks who want to maintain their monopoly.

Late last year, Steven Ho saw alarm bells on social media: The Chinese government was gearing up for a major crackdown on foreign investment, and on messaging platforms such as WeChat and Line, Ho’s friends told him they were concerned that money would be tighter. In January, those worries became reality, as the government imposed exacting new capital controls that required Chinese citizens to disclose the purpose of their foreign investments.

In the days that followed, numerous callers told Ho, a senior loan officer at Queens-based Quontic Bank, that they were unable to get their money out of China to finance real estate investments in New York.

“They’re saying, ‘What’s the max I can borrow?’ and they’ll figure out other means [for repayment] later,” Ho said.

Even before the latest rule took effect, China capped overseas transfers at $50,000 in an attempt to curb the massive amount of overseas investment taking place (though many Chinese investors found a way around those limitations by diverting money into business accounts or through a network of banks in Hong Kong). But since the January regulations, local banks are seeing a wave of interest from buyers who want to invest in New York real estate, but whose funds are stuck in mainland China. As a result, the Chinese investment market in New York City, which for years was defined by splashy all-cash purchases, has morphed into one grounded by more traditional financing. The shift offers a growing opportunity to a handful of lenders such as Quontic, HSBC, Guardhill Financial, Cathay Bank and Abacus Federal Savings Bank.

Between April 2015 and March 2016, Chinese buyers paid all cash in 71 percent of U.S. real estate deals, compared to just 20 percent who obtained mortgages from a U.S. lender, according to the National Association of Realtors. (About 6 percent received a mortgage from a Chinese lender.) But that’s changing, and industry sources said it’s changing quickly.

Borrowing money in a foreign currency when the value of your currency is declining is a recipe for disaster. It’s even worse than taking on an adjustable-rate mortgage because there is no limit to how much a currency exchange can adjust.

“They’re saying, ‘What’s the max I can borrow?’ and they’ll figure out other means [for repayment] later,” Ho said.

This will be interesting to follow because the max you can borrow is dictated by your ability to document income. If you are banking on the ability to get money out of mainland China to pay your debt, there is no guaranty of those controls loosening. Hopefully, these banks are not using foreign bank account statements when calculating income and reserves. If these buyers fail to smuggle the money out of China, the mortgages all of the sudden become high risk, and in New York doubly so, because the foreclosure timeline exceeds 1,000 days.

The banks listed in the article are portfolio lenders which means if the Chinese borrowers start defaulting, they are going to have a bunch of Jumbo mortgages that can’t be foreclosed on for years nuking their capital ratios.

The previous low point for such sales was in 2007 when cash sales accounted for a 27 percent of sales.

CoreLogic also noted that distressed home sales, a total of both short sales and sales of lender-owned real estate (REO) accounted for 8.9 percent of all sales for the year, also the lowest share since 2007.

The combined REO and short sales share was the lowest for distressed properties since October 2007 when the total was 6 percent.